oversight

Missile Procurement: Further Production of AMRAAM Should Not Be Approved Until Questions Are Resolved

Published by the Government Accountability Office on 1990-05-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 I


                                                                l:rril.tvl                                                                                                           “1
 .” II ..._-111”1”~1~              . .. . . - _-.. .    .-        -_._._.__..__.Slillt3
                                                             _ _.._.                     I..-- i;tkrrtkral
                                                                               _” _.I .,..-     “1”_.1_           Ac~orlnt
                                                                                                      .-..--_..------               ing Ol’l’iw.._._..-
                                                                                                                      -.-.----.-..---._._-          .-......I “.~_I ..-.----------




---_._--.lll__       .-..”   ..”   *“I,L,“^I.“m”-““-.




   .11it\ l’tO0
            ..
                                                                MISSILE
                                                                PROCUREMENT
                                                                Further Production of
                                                                    RAAM Should Not
                                                                Be Approved Until
                                                                Questions Are
                                                                Resolved
National Security and
International Affairs Division

H-22 1734

May 4,199O

The Honorable Denny Smith
I louse of Representatives

Dear Mr. Smith:

This report addresses the status of the Advanced Medium Range Air-to-Air Missile (AMRAAM)
at the scheduled full-rate production milestone. As requested, we focused on the missile’s
demonstrated operational performance, the contractors’ readiness to produce quality
missiles at the required rates, and the latest program cost estimates.

The report concludes that significant questions about AMRAAM'S performance, reliability,
producibility, and affordability remain unresolved. It recommends that the Secretary of
Defense not approve any additional AMRAAM production until (1) tests demonstrate that the
missile can meet all of its critical performance requirements and that its reliability meets the
established requirements, (2) both contractors demonstrate that they can consistently
produce quality missiles at the rates required by their contracts, (3) the Air Force and the
Navy complete their review of missile quantity requirements, and (4) the Department of
Defense determines that the AMRAAM program is affordable within realistic future budget
projections and consults with the Congress to ensure that the program complies with the
adjusted statutory cost cap. The report also suggests that the Congress deny the $1.34 billion
requested for AMRAAM procurement in fiscal year 1991.

1Jnless you publicly announce its contents earlier, we plan no further distribution of this
report until 5 days after its issue date. At that time we will send copies to the Secretaries of
Defense, the Air Force, and the Navy; the Director, Office of Management and Budget; the
I louse and Senate Committees on Armed Services and on Appropriations; and other
interested parties.

This report was prepared under the direction of Nancy R. Kingsbury, Director, Air Force
Issues, who may be reached on (202) 275-4268 if you or your staff have any questions
concerning this report. Other major contributors to this report are listed in appendix I.

Sincerely yours,




Frank C. Conahan
Assistant Comptroller General
Ekecutive Summ~


               If a weapon system is authorized for production before tests demon-
Purpose        strate that it will be effective and reliable in combat, the risk that design
               changes will be required to the system increases. Such changes could
               disrupt production schedules and result in costly modifications.

               Congressman Denny Smith requested that GAO review the status of the
               Advanced Medium Range Air-to-Air Missile (AMRAAM) program before
               the Defense Acquisition Board’s review of the missile’s readiness for
               full-rate production. Specifically, GAO assessed whether

             . operationally realistic tests have demonstrated that AMRAAM will be
               effective and suitable in combat,
             l AMRAAM'S design is complete, stable, and producible by both contractors
               at the required rates, and
             9 the Air Force and the Navy can procure 24,000 missiles within the
               adjusted statutory cost cap.


               The Air Force and the Navy are jointly developing AMRUM to replace
Background     the Sparrow missile. AMRUM will be compatible with both services’ lat-
               est fighter aircraft-the    F-14, F-15, F-16, F/A-18, and Advanced Tacti-
               cal Fighter-and     is expected to have some key performance
               improvements over the Sparrow, such as the capability for a pilot to
               engage several targets simultaneously and then maneuver the aircraft to
               avoid counterattack.

               Hughes Aircraft Company is the prime development contractor under a
               leader-follower acquisition strategy. Raytheon Company, the follower,
               continues to monitor and assist in the missile’s development.

               The Air Force and the Navy plan to procure 24,320 missiles between
               1987 and 1998 at an estimated total acquisition cost of $14.9 billion,
               including inflation. The Department of Defense has approved about $2.4
               billion in procurement funds for the first 3 years of low-rate initial pro-
               duction, during which 1,480 missiles will be produced.

               In September 1989 GAO reported in Missile Procurement: AMI~AAM Not
               Ready For Full-Rate Production (GAO/NSIAD-89-201, Sept. 7, 1989) that too
               many uncertainties existed in the AMRAAM program to warrant the
               approval of full-rate production. In December 1989 the Department of
               Defense authorized funds for long-lead items for the fourth production
               year but did not authorize production of the missile. In May 1990 the
               Defense Acquisition Board plans to make a full-rate production review


               Page 2                                      GAO/NE&ID-90-146 Missile Procurement
                              Executive Summary




                              and a recommendation to the Secretary of Defense on whether the pro-
                              gram should proceed into full-rate production, return to full-scale devel-
                              opment, or be terminated. The President’s fiscal year 1991 budget
                              requests $1.34 billion for the full-rate production of 1,800 missiles in the
                              fifth production year.


                              At the completion of GAO'S review in March 1990, significant questions
Results in Brief              about AMRAAM'S performance, reliability, producibility, and affordability
                              remained unresolved. A few critical performance requirements have not
                              yet been demonstrated in testing. AMRAAM'S reliability remains unaccept-
                              able despite many design changes to improve the missile’s reliability.
                              The contractors were at least 6 months behind in missile deliveries, and
                              some of the problems that delayed production had not been resolved.
                              Total estimated procurement cost had increased substantially, exceeding
                              the adjusted statutory cost cap. In view of the continuing problems, GAO
                              believes that the Secretary of Defense should not approve any addi-
                              tional production until the significant questions about the missile are
                              resolved. GAO also believes that the Congress should deny funds
                              requested for AMRAAM procurement in fiscal year 199 1.



Principal Findings

A Few Critical                Tests have demonstrated many of AMRAAM'S performance requirements,
Performance Requirements      but a few critical requirements have not yet been proven. For example,
                              the Air Force has not shown that AMRAAM provides pilots with the capa-
Have Not Yet Been             bility to engage four targets simultaneously or that AMRAAM can be effec-
Demonstrated                  tively used with the Sparrow missile. Additional tests with initial
                              production missiles were to address these and other issues, but the tests
                              had not been completed as of March 1990.


Operational Reli.ability Is   In September 1989 GAO reported that AMRAAM'S reliability was unaccept-
Unacceptable                  able because it could not withstand the vibration and other environmen-
                              tal conditions that it is exposed to when carried on the F-15 aircraft.
                              AMRAAM'S reliability remains unacceptable despite many changes to
                              improve the missile’s reliability. In flight tests conducted by the Air
               Y              Force’s independent test organization from December 1989 through
                              March 1990, 10 missile failures occurred within 895 flight hours, This



                              Page 3                                     GAO/NSIAD-90-146 Missile Procurement
                           Executive Summary




                           computes to an average time of only about 90 hours between mainte-
                           nance, which is far below the interim requirement of 200 hours set for
                           the full-rate production decision and the final requirement of 450 hours.
                           In February 1990 the Air Force stopped accepting missiles until the rea-
                           sons for the failures are understood and the problems resolved.


Design Changes and         Neither contractor has demonstrated the ability to produce quality mis-
Manufacturing Problems     siles at a consistent rate, much less a steadily increasing rate. Both con-
                           tractors were at least 6 months behind their latest approved production
Continue                   schedules. Design changes and manufacturing problems continued to
                           delay production. Both contractors were reviewing design specifications
                           and production process controls at their plants and subcontractor plants
                           to improve the quality and reliability of future missiles.


Estimated Costs Increase   The Air Force’s most recent estimate in 1984 dollars shows that the cost
Significantly              to procure 24,320 AM-MS has increased to $9.4 billion, which is 24 per-
                           cent above the adjusted statutory cost cap of $7.6 billion. With inflation,
                           the total procurement cost is estimated to be $13.5 billion, 31 percent
                           more than the previous estimate of $10.3 billion. The increase occurred
                           primarily because of changes in certain assumptions, such as the
                           amount of savings to be realized from contractor competition and the
                           rate at which the contractors will become more efficient. Unless the
                           administration and the Congress provide between $0.9 billion and $1.7
                           billion annually for the next 8 years, procurement costs will increase
                           even further due to, among other things, higher overhead charges per
                           missile and less-than-optimal component procurement quantities.

                           The Air Force and the Navy are reviewing their AMRAAM quantity
                           requirements, and the Air Force is preparing a plan that assumes that a
                           total of only 15,500 missiles will be procured. A reduction in the number
                           of missiles to be procured would decrease the total procurement cost but
                           increase the cost of each missile.


                           GAO recommends that the Secretary of Defense not approve any addi-
Recommendation             tional AMRAAM production until (1) tests demonstrate that the missile
                           can meet all of its critical performance requirements and that its relia-
                           bility meets the established requirements, (2) both contractors demon-
           ”               strate that they can consistently produce quality missiles at the rates
                           required by their contracts, (3) the Air Force and the Navy complete
                           their review of missile quantity requirements, and (4) the Department of


                           Page 4                                     GAO/NSIAD-90-146 Miesile Procurement
    .
                  Executive Summary




                  Defense determines that the AMFAAM program is affordable within real-
                  istic future budget projections and consults with the Congress to ensure
                  that the program complies with the adjusted statutory cost cap.

                                                                                             -
                  GAO believes the Congress should deny the $1.34 billion requested for
Matter for        AMRAAM procurement in fiscal year 1991 because the missile’s perform-
Congressional     ance, reliability, producibility, and affordability remain questionable.
Consideration     Moreover, missile deliveries from the first production year are at least
                  6 months behind schedule, and additional delays appear likely. Because
                  funds have already been appropriated for three additional production
                  years, it is highly unlikely that additional procurement funds will be
                  necessary before fiscal year 1992. Should the contractors resolve their
                  manufacturing problems and begin to produce quality missiles consist-
                  ently, ample opportunity would be available to rephase delivery sched-
                  ules to preclude any gaps in production. Denying the funds would
                  reduce financial risks while the Under Secretary of Defense for Acquisi-
                  tion determines if reliability problems can be resolved and if the con-
                  tractors can recover delivery schedules.


                  As requested, GAO did not obtain official agency comments on this
Agency Comments   report. However, GAO discussed a draft of this report with officials
                  responsible for managing the program at the Office of the Secretary of
                  Defense, the Air Force, and the Navy and incorporated their comments
                  where appropriate.




                  Page 5                                   GAO/NSIAD-90-146 Missile Procurement
Contents


Executive Summary                                                                                    2

Chapter 1                                                                                            8
Introduction             The Defense Acquisition Process
                         AMRAAM’s Acquisition History
                                                                                                    10
                                                                                                    10
                         Recent GAO Reports                                                         12
                         Objectives, Scope, and Methodology                                         13

Chapter 2                                                                                           16
AMR,AAM’s Reliability    Importance of Testing Before Production
                         A Few Critical Capabilities Have Not Been Demonstrated
                                                                                                    16
                                                                                                    16
Is Unacceptable          AMRAAM’s Reliability Still Unacceptable                                    18

Chapter 3                                                                                           21
Continuing Design        Importance of Design Stability
                         Contractors Have Not Met Production Schedules
                                                                                                    21
                                                                                                    21
Changes and              Reasons for Production Delays                                              24
Production Problems      Continuing Design Changes and Manufacturing Problems                       25
                             May Impact Future Deliveries
                         Production Readiness Assessments Delayed                                   26

Chapter 4                                                                                           28
Estimated Costs          Long-Standing Congressional Concern About AMRAAM’s
                              cost
                                                                                                    28
Increase Significantly   Causes for Procurement Cost Increases                                      29
                         Substantial Procurement Funds Needed in Future Years                       30
                         Current Estimate Under Review                                              30

Chapter 5                                                                                           32
Conclusions and          Conclusions
                         Recommendation
                                                                                                    32
                                                                                                    32
Recommendation           Matter for Congressional Consideration                                     33

Appendix                 Appendix I: Major Contributors to This Report                              34


           Y




                         Page 6                                   GAO/NSIAD-90-146 Missile Procurement
                       Contents




Related GAO Products
Table                  Table 4.1: AMRAAM Procurement Quantity and Funding                        30
                           Requirements for Fiscal Years 1991 Through 1998

Figures                Figure 1.1: The AMRAAM                                                     8
                       Figure 3.1: Hughes’ Scheduled and Actual Missile                          22
                            Deliveries Per Month
                       Figure 3.2: Raytheon’s Scheduled and Actual Missile                       23
                            Deliveries Per Month




                       Abbreviations

                       AMRAAM     Advanced Medium Range Air-to-Air   Missile
                       GAO        General Accounting Office


                       Page 7                                  GAO/NSIAD-90-146 Missile Procurement
Chapter 1

Introductio6                                                                                                                                  ,


                                                  The Air Force and the Navy are jointly developing the Advanced
                                                  Medium Range Air-to-Air Missile (AMRAAM) to meet their air-to-air mis-
                                                  sile requirements into the next century.’ The primary goal of the
                                                  AMRAAM program is to produce an all-weather, medium range missile
                                                  that will enable a pilot to simultaneously engage multiple aircraft in
                                                  combat. The missile is to destroy targets both within and beyond the
                                                  pilot’s visual range and is to be compatible with both services’ latest
                                                  fighter aircraft: the F-14, F-15, F-16, F/A-18, and Advanced Tactical
                                                  Fighter. The AMRAAM, shown in figure 1.l, is about 12 feet long and
                                                  weighs about 345 pounds.

Figure 1.1: The AMRAAM



       Antenna                      Electronics




                               \
                   Batteries/Transmitter                                                                Rocket   hii---   Data Link   ’
                                                                                                                               -xl




                                                  AMRAAM is to replace the Sparrow missile, several versions of which
                                                  have been in production for the Air Force, the Navy, and numerous for-
                                                  eign countries since the late 1950s. AMRAAM is intended to improve air-
                                                  craft combat effectiveness and to be more reliable and maintainable
                                                  than the Sparrow. It has some improved performance features over the
                                                  Sparrow, including higher speed, greater range, increased maneuverabil-
                                                  ity, and better resistance to electronic countermeasures. In addition,
                                                  AMRAAM has an active terminal seeker that enables the missile’s on-board
                                                  radar to acquire and guide to a target autonomously, unlike the Spar-
                                                  row, which has a semi-active seeker that requires the launch aircraft to
                                                  illuminate the target with its radar until missile impact. AMRAAM’S seeker
                                                  and the launch aircraft’s radar are to enable the pilot to track multiple
                                                  targets, launch multiple missiles, and maneuver the aircraft to avoid
                                                  counterattack. AME~AAMis designed to guide close to the target and
                                                  detonate its warhead within lethal range of the target.



                                                  ‘The Air Forceis the lead procuring service.The Joint SystemProgramOffice locatedat Eglin Air
                                                  ForceBase,Florida, is the primary office responsiblefor managingdevelopmentand production.



                                                  Page 8                                                 GAO/NSIABBO-146 Missile Procurement
Chapter 1
Introduction




Most of the testing has been done by the Air Force, but the Navy plans
to begin its operational testing in the near future. Because the missile’s
initial operational capability is planned to be achieved on the Air Force’s
F-16, most of its developmental and initial operational testing has been
conducted using that aircraft.

Hughes Aircraft Company is the prime development contractor under a
leader-follower acquisition strategy. During full-scale development, Ray-
theon Company, the follower, monitored the Hughes design effort and
produced 15 missiles to qualify as a second producer. During produc-
tion, Raytheon continues to monitor and assist with design changes to
the missile.

Through fiscal year 1990, the Congress had appropriated about $3.2 bil-
lion for the first 4 years of AMFUAM production. These funds are
expected to procure a total of 2,380 missiles. Of the $3.2 billion, $795.9
million was appropriated to procure 900 missiles in fiscal year 1990.
However, the Secretary of Defense decided not to approve production of
these missiles until after the Under Secretary of Defense for Acquisition
makes a recommendation on AMRAAM'S readiness for full-rate produc-
tion. In December 1989, the Under Secretary decided to release only lim-
ited funds to procure long-lead items and not approve production of
those missiles until after AMRAAM'S readiness for full-rate production is
determined.

The President’s fiscal year 1991 budget requests $1.34 billion for the
full-rate production of 1,800 missiles in the fifth production year. The
Air Force and the Navy plan to buy a total of 3,000 missiles each year
from 1992 through 1997 and 2,140 missiles in 1998, which is expected
to be the final production year. Both services’ budget request for fiscal
year 1992 is expected to total $1.67 billion,

The Air Force and the Navy expect to spend a total of about $1.34 bil-
lion for AMRAAM research and development. Through fiscal year 1989,
about $1.1 billion had been spent. According to the December 1989
Department of Defense Selected Acquisition Report, the total cost for
24,320 missiles-procured      over a 12-year period-is projected to be
$13.54 billion, with inflation. Without inflation, this amounts to $9.4 bil-
lion (in 1984 dollars).




Page 9                                     GAO/NSIAD-90-146 Missile Procurement
                      Chapter 1                                                                  ,
                      Introduction




                      Major defense system acquisitions typically proceed through several
The Defense           phases, with each phase preceded by a senior management review at the
Acquisition Process   military service and/or the Department of Defense level. These reviews
                      are referred to as milestone decisions. The milestone “0” decision con-
                      siders whether a system should proceed into the concept exploration
                      phase, during which alternative system concepts are identified and eval-
                      uated. The milestone “1” decision considers whether a system should
                      proceed into the demonstration and validation phase, during which test
                      articles are fabricated and tested to see if they can perform generally as
                      expected. The milestone “II” decision considers whether one or more
                      systems should proceed into full-scale development. During this phase,
                      several test articles, or prototypes, are made and undergo numerous
                      tests to ensure that the design meets system requirements. The mile-
                      stone “III” decision considers whether the system should be produced
                      and fielded. Frequently, the Department of Defense and the military ser-
                      vices divide the production decision into two increments: milestone
                      “IIIA” and “IIIB.” Milestone IIIA is for low-rate initial production and is
                      to provide articles for additional testing and to allow contractors to
                      prove needed manufacturing techniques and controls. Milestone IIIB is
                      to authorize full-rate production.

                      Within this general framework, the Department of Defense tailors the
                      acquisition phases for a particular program to that program’s needs and
                      risks. As a result, phases can be combined or can run concurrently, that
                      is, production can start before development is complete.


                      The AMRAAM program began in October 1975 when an Air Force and
AMRAAM’s              Navy tactical working group defined requirements for air-to-air weap-
Acquisition History   ons for 1986 and beyond. The Congress approved the missile’s develop-
                      ment in July 1976. During the concept exploration phase, five
                      contractors-General    Dynamics, Hughes, Northrop, Ford Aeronitronics,
                      and Raytheon-explored      critical technologies and compared alternate
                      system configurations to meet operational requirements. In November
                       1978 the Secretary of Defense approved the program’s transition to the
                      demonstration and validation phase. In February 1979 two contrac-
                      tors-Hughes and Raytheon- were selected for a 33-month competitive
                      effort to determine the primary design contractor for full-scale develop-
                      ment. The Air Force awarded Hughes a 54-month full-scale development
                      contract in December 1981.

                      AMRAAM'S schedule slipped and costs increased significantlyduring the
                      full-scale development phase. In January 1985 the Secretary of Defense


                      Page 10                                   GAO/NSIAD-90-146 Missile Procurement
Chapter 1
Introduction




expressed concern over the schedule delays and rising costs and ordered
a complete program review to determine if and how costs could be
reduced. As a result of this review, the Air Force began a program to
reduce production costs by redesigning many of the missile’s compo-
nents to make them more producible. The Air Force also extended the
full-scale development phase from 54 to 79 months and postponed the
initial operational capability date from 1986 to 1989. At the completion
of our review in March 1990, the operational capability had not been
achieved.

The National Defense Authorization Act for fiscal year 1986 required
the Secretary of Defense to certify to the House and Senate Committees
on Armed Services by March 1, 1986, that AMRAAM would meet certain
cost and performance requirements or the program would be termi-
nated. On February 28, 1986, the Secretary certified2 to each require-
ment, including that the design was complete and that the Air Force
could buy a minimum of 17,000 missiles for $5.2 billion (in 1984 dol-
lars).” Later, the National Defense Authorization Act for fiscal year 1987
established a cost cap of $7 billion (in 1984 dollars) for the procurement
of 24,000 missiles. These figures were derived by adding Navy procure-
ment quantities and estimated costs to the amounts certified in 1986.

In June 1987 the Secretary of Defense approved funding for the first
year of AMRAAM low-rate initial production, and the contractors are in
the process of producing 180 missiles that contain an interim software
configuration known as tape 3A.4 The Air Force is using some of the
missiles for additional testing while others are being placed in inventory
to achieve AMRAAM'S initial operational capability on the F-15 aircraft.

The Defense Acquisition Board reviewed the program’s status and test
results in May 1988. On the basis of the Board’s recommendation, the
Secretary approved the production of 400 full-capability missiles,
known as tape 4, for the second production year. The tape 4 missiles
should perform better than the tape 3A missiles against some electronic
countermeasures that the enemy is expected to use to confuse AMRAAM


%   March 1986we testified beforethe Subcommitteeon Procurementand Military NuclearSystems,
HouseCommitteeon Armed Services,that, although uncertaintiesabout AMRAAM’scost,schedule,
and performancecontinue,the Secretary’scertification had met the legal requirementsof the
legislation.
“This estimatewas basedon a total procurementof 24,000missiles.
4AMRAAMsoftware was developedin five incrementalstages,referred to astapes 1,2,3,3A, and 4.



Page 11                                              GAO/NSIAD90-146 Missile Procurement




                                                                                ”
                     Chapter 1                                                                  ,
                     Introduction




                     and degrade its performance. According to the AMRUM program man-
                     ager, the tape 4 missiles also provide additional multiple target capabili-
                     ties over the tape 3A missiles.

                     In May 1988 the Board also reviewed the Air Force’s request to procure
                     long-lead items for the first year of AMRAAM full-rate production but
                     chose to defer its decision until more tape 4 developmental and opera-
                     tional test data were available. In September 1988 the Board’s Conven-
                     tional Systems Committee decided that AMRAAM was not ready for full-
                     rate production and recommended that the quantity of missiles for the
                     third production year be reduced from 1,270 to 900. The Committee also
                     recommended that the Air Force be permitted to proceed with the pro-
                     curement of the long-lead items but decided to review the program again
                     before authorizing fabrication of the 900 missiles. In June 1989 the
                     Committee decided to postpone a final decision on fabrication of the 900
                     missiles until more reliability test data could be obtained.

                     In December 1989 the Board, citing improved reliability, approved the
                     fabrication of 900 missiles for the third production year and authorized
                     the Air Force to commit up to $84.5 million of fiscal year 1990 funds for
                     long-lead items and producibility enhancements for the fourth produc-
                     tion year. However, the Board did not authorize that production year as
                     a part of low-rate initial production. The Board decided to review the
                     program again in May 1990, before making a recommendation to the
                     Secretary of Defense on whether the program should proceed into full-
                     rate production, return to full-scale development, or be terminated. The
                     Under Secretary of Defense for Acquisition has stated that continued
                     low-rate production is not an option.

                     The National Defense Authorization Act for fiscal years 1990 and 1991
                     includes a provision that restricts the Air Force from proceeding to full-
                     rate production-defined     as producing more than 900 missiles per
                     year-until    the Director of Operational Test and Evaluation certifies
                     that all required testing has been completed, the results demonstrate the
                     missile has met its stated performance goals, and a stable design, includ-
                     ing software, has been established.


                     Shortly after the June 1987 program review, which recommended
Recent GAO Reports   approval of AMRAAM'S initial production, we reported in Missile Develop-
         Y
                     ment: Development Status of the Advanced Medium Range Air-to-Air
                     Missile (GAO/NSIAD-87-168, Aug. 14, 1987) that the missile’s unstable
                     design and small number of completed tests increased production risks.


                     Page 12                                    GAO/NSIAD-90-146 Missile Procurement
                            Chapter 1
                            Introduction




                            The decision to approve the first year of low-rate initial production was
                            made 13 months before the then-scheduled completion of full-scale
                            development. Later development delays increased the overlap between
                            development and production to 19 months.

                            Shortly after the May 1988 program review, which resulted in approval
                            of AMRPLAM'Ssecond year of production, we reported in Missile Develop-
                            ment: AMRAAM'S Combat Effectiveness at Production Not Fully Tested
                            (GAO/NSIAD-88-186, July 7, 1988) that the Air Force had not completed
                            tests needed to make a full and accurate assessment of the missile’s per-
                            formance and that completed tests had identified performance and relia-
                            bility problems that had not been resolved. Therefore, we concluded
                            that the combat effectiveness and reliability of missiles to be produced
                            for the operational inventory were uncertain.

                            In September 1989 we reported in Missile Procurement: AMRAAM Not
                            Ready For Full-Rate Production (GAO/NSIAD-89-201, Sept. 7, 1989) that
                            AMIUAM was not ready to proceed into full-rate production. The report
                            cited performance requirements that had not been demonstrated, relia-
                            bility that was unacceptable, and continued design changes that were
                            disrupting production deliveries from both contractors, We recom-
                            mended that the Secretary of Defense not authorize AMRAAM for full-rate
                            production until realistic tests demonstrate that the missile will be effec-
                            tive and reliable, the design stabilizes, and production readiness reviews
                            show that the contractors can produce quality missiles at the required
                            rates.


                            Congressman Denny Smith asked us to report on the status of the
Objectives, Scope,and       AMRAAM program before the Defense Acquisition      Board considers the
Methodology                 missile’s readiness for full-rate production. Specifically, we assessed
                            whether

                        l   operationally realistic tests have demonstrated that AMRAAM will be
                            effective and suitable in combat,
                        l   the missile’s design is complete, stable, and producible by both contrac-
                            tors at the required rates, and
                        l   the services can procure 24,000 missiles within the adjusted statutory
                            cost cap.

                            We obtained information from records and officials primarily within the
                            AMWM Joint System Program Office. We also discussed AMRAAM'S status
                            and testing issues with officials in the following organizations.


                            Page13                                     GAO/NSIAD-90-146 Missile Procurement
    Chapter 1
    Introduction                                                               ,




    Office of the Secretary of Defense

. Office of the Under Secretary of Defense for Acquisition
l Director, Operational Test and Evaluation
. Director, Live Fire Test

    Department of the Air Force

. Headquarters
. Headquarters, Tactical Air Command
l Systems Command, Munitions Systems Division
. Operational Test and Evaluation Center

    Contractors

l Hughes Aircraft Company
. Raytheon Company

    To determine whether tests have demonstrated AMRAAM'S operational
    effectiveness and suitability, we reviewed test reports, compared
    planned and actual test schedules, and correlated the individual test
    results with the critical performance issues that were to be addressed.
    We examined the results of reliability flight tests, various ground tests,
    and air-to-air missile firings. We witnessed selected guided flight tests
    and discussed test results with Air Force, Navy, and Office of the Secre-
    tary of Defense officials responsible for conducting and monitoring the
    tests.

    To assess design stability, we reviewed pertinent regulations and the
    results of key activities intended to determine design progress. These
    activities included design reviews, component qualification tests, engi-
    neering change proposals, deviations and waivers, functional and physi-
    cal configuration audits, and the plan for resolving open items from
    these reviews, We also reviewed the results of previous production read-
    iness reviews and the extent to which contractors were meeting sched-
    uled deliveries under the contracts for the first and second years of
    production. During our visits to both Hughes and Raytheon, we dis-
    cussed design changes and manufacturing problems that delayed pro-
    duction deliveries and must be overcome to ensure that both contractors
    can deliver reliable missiles at the required rates.

    To evaluate estimated costs, we reviewed the latest approved cost esti-
    mate contained in the December 1989 Selected Acquisition Report. We


    Page 14                                   GAO/NSIAD-90-146 Missile Procurement
Chapter 1
Introduction




also reviewed key events that have changed or may change the assump-
tions supporting the cost estimate and discussed the status of cost
reduction efforts with Air Force and contractor officials.

We conducted our review from August 1989 through March 1990 in
accordance with generally accepted government auditing standards. As
requested, we did not obtain official agency comments on this report.
However, we discussed a draft of this report with officials responsible
for managing the program at the Office of the Secretary of Defense, the
Air Force, and the Navy and incorporated their comments where
appropriate.




Page 16                                  GAO/NSIAJMO-146 Missile Procurement
Chapter 2

AMRAAM’s Reliability Is Unacceptable


                        The Department of Defense has approved the first 3 years of low-rate
                        initial production in which 1,480 missiles will be produced at a cost of
                        about $2.4 billion, without demonstrating that AMRAAM is suitable for
                        deployment. All but a few critical performance requirements have been
                        demonstrated but AMRAAM'S reliability is unacceptable. As of March
                        1990, the Air Force had stopped accepting missiles from both contrac-
                        tors because of continued reliability problems.


                        In May 1990 the Defense Acquisition Board plans to make a recommen-
Importance of Testing   dation to the Secretary of Defense on AMRAAM'S readiness for full-rate
Before Production       production. Department of Defense Directive 5000.3, “Test and Evalua-
                        tion,” requires that test objectives be accomplished before committing
                        significant resources to a weapon system or advancing a system from
                        one acquisition phase to another. Several statutes governing major sys-
                        tem acquisitions stipulate that a system” may not proceed beyond low-
                        rate initial production until (1) independent tests prove that the system
                        will be effective and reliable when used under realistic, combat-like con-
                        ditions, (2) the Director, Operational Test and Evaluation, assesses the
                        system’s operational effectiveness and suitability and reports the results
                        to the Secretary of Defense and the House and Senate Committees on
                        Armed Services and on Appropriations, and (3) realistic survivability or
                        lethality testing of the system is completed and the Secretary of Defense
                        submits a report on the testing to the defense committees of the Con-
                        gress. These reports are expected to be finalized and presented to the
                        Defense Acquisition Board for its scheduled review of AMRAAM in May
                        1990.


                        Since our September 1989 report, tests have demonstrated additional
A Few Critical          AMKAAM performance capabilities. For example, tests have shown that
Capabilities Have Not   improved missile software was effective against a specific electronic
Been Demonstrated       countermeasure that caused one missile to fail during a previous test.
                        Also, according to a draft report being prepared by the Department of
                        Defense’s Office of Live Fire Test, tests have shown that AMRAAM'S war-
                        head is lethal. Other tests have shown that AMRAAM can be successfully
                        launched during a variety of aircraft maneuvers. Nevertheless, tests to
                        demonstrate the few remaining critical performance requirements had
                        not been completed, as discussed below.


                        “Somewhatdifferent rules apply to thoseprograms,such asspacesystemsand ships,that involve
                        procurementof a few itemsover an extendedperiod.



                        Page 16                                             GAO/NSIAD-90-146 Missile Procurement
                           Chapter   2
                           AMRAAlW’s Reliability   Is Unacceptable




Multiple Targets           AMRAAM is to provide the pilot with the capability to engage multiple
                           resolved targets” simultaneously. The Air Force’s Tactical Air Command,
                           which represents operational units that would use the missile in combat,
                           considers this to be a critical requirement. However, the Air Force has
                           not yet demonstrated that the missile can fully meet this requirement.

                           An August 2, 1989, test failed to show that one aircraft could simultane-
                           ously engage four resolved targets in an electronic countermeasure envi-
                           ronment with four AMRAAMS. According to the test report, three of the
                           four missiles missed their targets because of software deficiencies in the
                           F-15 aircraft’s fire control system, and one missile missed its target
                           because of a missile software deficiency.

                           After the test, the Air Force modified the aircraft and missile software
                           and structured a series of tests to demonstrate that the problems were
                           resolved. The series involves four tests of increasing complexity, includ-
                           ing a repeat of the August 1989 test.

                           The first three tests were successful. In November 1989, an AMRAAM
                           with upgraded software successfully hit a target in an electronic envi-
                           ronment similar to the one used in the earlier four-missile test. In Febru-
                           ary 1990 an F-15 with upgraded software successfully engaged one of
                           two resolved targets- only one missile was launched-in      an environ-
                           ment that included most of the electronic countermeasures used in the
                           August 1989 test. In March 1990 an F-15 launched two missiles and suc-
                           cessfully engaged two resolved targets in the same electronic environ-
                           ment used in the August 1989 test. One missile scored a direct hit, and
                           the second passed within lethal radius of the target.

                           At the completion of our review, the repeat of the August 1989 test was
                           scheduled for early May 1990. The Under Secretary of Defense for
                           Acquisition has determined that the test will be considered successful if
                           at least two of four missiles successfully engage their targets.


Tests With Live Warheads   In addition to the four developmental flight tests with warheads already
                           conducted-two      of which were successful-the Air Force’s independent
                           test center requires that an AMRAAM with a live warhead produced by
                           each contractor be successfully flight tested before the full-rate produc-
                           tion decision. The first two missiles received, one from each contractor,


                           “Targets are resolvedwhen they appearasdiscretesymbolson an aircraft’s radar display.



                           Page 17                                               GAO/NSLAD-90-146 Missile Procurement




                                                               ,




                                                                        4
                       Chapter   2
                       AMRAAM’s Reliability   Is Unacceptable                                                r




                       failed to pass ground tests at the test site and were returned to the con-
                       tractors. A second Hughes missile, launched in February 1990, success-
                       fully destroyed its target. A second Raytheon missile is scheduled to be
                       launched in late April 1990.


Weapon System          In March 1989 the Director, Operational Test and Evaluation, concluded
Compatibility          that AMRAAM and Sparrow compatibility must be adequately addressed
                       for an adequate initial operational test and evaluation to support the
                       full-rate production decision. However, the Air Force does not expect to
                       conduct the planned flight test to demonstrate AMRAAM and Sparrow
                       compatibility before the May 1990 decision.

                       The Air Force’s independent test center attempted the test in May 1989
                       but aborted it because changes made to the aircraft radar software pre-
                       cluded the launch of either missile. The aircraft radar software has been
                       modified, but, because of higher priorities, the Air Force has postponed
                       the compatibility test until after the planned full-rate production deci-
                       sion The Director, Operational Test and Evaluation, had not reached a
                       conclusion on the extent to which the failure to conduct the compatibil-
                       ity test would limit the adequacy of operational test data to support its
                       assessment of AMRAAM'S operational effectiveness and suitability. That
                       assessment must be accomplished before the full-rate production
                       decision.


                       Reliability is an important aspect of AMRAAM'S or any other missile’s
AMRAAM’s Reliability   suitability for deployment. Although many combat missions would not
Still Unacceptable     expose the missile to long periods of stressful flight on the aircraft
                       before launch, other combat and peacetime missions would.

                       At the completion of our review, the Air Force had not demonstrated
                       that AMRAAM could meet its reliability requirement. Through March
                       1990, independent tests had demonstrated an average time between
                       maintenance of only about 90 hours, which is far short of the 200-hour
                       criterion established for the full-rate production decision.7 Also, reliabil-
                       ity failures had been experienced on at least three of the four missiles
                       used in the Navy’s recent tests to integrate AMRAAM on the F/A-18. As a
                       result, the Air Force stopped accepting production missiles from both
                       contractors in February 1990.

                       7’IY~e
                            2Whour criterion is an interim requirementtoward the 450-houraveragetime betweenmainte-
                       nancespecifiedin the Joint ServiceOperationalRequirement.



                       Page 18                                             GAO/NSLAD-90-146 Missile Procurement
    .
        Chapter2
.       AMRAAM’s RelAability Is Unacceptable




        In May 1989 the Air Force’s independent test center stopped its involve-
        ment in AMRAAM reliability testing because the early results were unac-
        ceptable. That was the latest of several unsuccessful attempts by the
        test center to demonstrate AMRAAM'S reliability. As we reported in Sep-
        tember 1989, the Air Force attributed AMRAAM'S reliability problems pri-
        marily to the more-severe-than-expected environment encountered
        when carried on the F-15 aircraft. Although AMRAAM completed environ-
        mental qualification tests in September 1988, the Air Force has since
        learned that the technical parameters used to design and test the missile
        were not representative of the actual environment in which AMRAAM will
        have to operate. After the missile’s production began, the Air Force dis-
        covered that the F-15 fuselage environment is much more severe than
        the levels and durations included in the missile’s design specifications.

        From May through November 1989, the Air Force and the contractors
        conducted extensive analyses and ground and flight tests to identify
        design and other changes to improve the missile’s reliability. Each con-
        tractor incorporated the changes and delivered six production missiles
        to the independent test center in late 1989.

        On December 11, 1989, the Under Secretary of Defense for Acquisition
        authorized the Air Force to proceed with AMRAAM'S third production
        year “based on the progress made in missile reliability over the past six
        months.” The Under Secretary also notified the Air Force that AMRAAM
        must average 200 flight hours between maintenance during a l,OOO-hour
        test program before the full-rate production decision.

        The independent test center resumed reliability testing in December
        1989, but initial results were not encouraging. Test missiles began to fail
        almost immediately, and at the completion of our review, 10 missile fail-
        ures had occurred in the first 895 test hours.

        In addition, reliability problems were experienced on at least three of
        the four missiles that the Navy launched during F/A-18 integration tests
        made between October 1989 and February 1990. The primary purpose
        of these tests is to demonstrate that AMFLAAMwill perform effectively on
        the F/A-18, and the secondary purpose is to guide the missiles to their
        targets. In all four tests, the missiles separated properly from the air-
        craft but did not guide to the targets. The Air Force and the Navy still
        do not know why the fourth missile failed.

        In other instances, Air Force test missiles failed ground tests at the test
        site before they were used in flight tests. For example, the first missiles


        Page 19                                    GAO/NSIAD-99-146 Missile Procurement
Chapter 2
AMRAAM’s ReliabilWy Is Unacceptable                                               ,




delivered for use in live warhead tests failed the ground tests and were
returned to the contractors. These failures occurred despite each con-
tractor’s additional environmental stress screening of all missiles before
shipment to the test sites or the operational inventory. This screening
process for both missile sections and complete missiles consists of a
short duration test that is supposed to be equivalent to about 40 to 60
hours of F-15 flight time.

As a result of reliability failures, the Air Force notified both contractors
in February 1990 that the government will not accept additional missiles
until the causes for the failures are better understood and the problems
are corrected. The Air Force also has established a special team to study
the problems, but the team had not issued its report at the completion of
our review.




Page 20                                    GAO/NSIAD!#O-146 Missile Procurement
Chap&   3

Continuing DesignChangesand
Production Problems

                       Neither contractor has demonstrated the ability to produce quality mis-
                       siles at consistent rates, much less at steadily increasing rates. At the
                       completion of our review, both Hughes and Raytheon were at least 6
                       months behind their latest approved delivery schedules. Tests and anal-
                       yses were continuing to identify design changes to improve AMRAAM'S
                       reliability and resolve production problems that had delayed and dis-
                       rupted missile deliveries throughout the first production year. Early
                       results from the most recent reliability tests indicated that more design
                       changes will be needed. Also, the Air Force has not completed qualifica-
                       tion tests to determine if all of the missile’s components can withstand
                       the higher-than-anticipated F-15 vibration levels.


                       Until the design stabilizes, the effectiveness, suitability, and
Importance of Design   producibility of a weapon system cannot be predicted with certainty.
Stability              According to Department of Defense Manual 4245.7-M, “Transition from
                       Development to Production,” a stable design provides confidence that a
                       system has overcome development problems and that it will meet
                       defined technical and operational performance requirements. Beginning
                       full-rate production before the design stabilizes increases the risk that
                       production schedules will be disrupted, weapons will not perform satis-
                       factorily, different missile configurations will enter inventory and have
                       to be maintained, and costly retrofit programs will be required.


                       As of March 1990 both Hughes and Raytheon were at least 6 months
Contractors Have Not   behind their latest approved production delivery schedules, and neither
Met Production         had shown the ability to deliver missiles consistently. Figures 3.1
Schedules              and 3.2 show the contractors’ planned and actual deliveries through
                       ,January 1990 under the first production year contracts.




                       Page 21                                   GAO/NSlAD-90-146 Missile Procurement
                                                                                                      ---
                                          chapter 3
                                                                                                            .
                                          Continuing Design Changes and
                                          Production Problems




Figure 3.1: Hughes’ Scheduled and Actual MissHe Deliveries Per Month
20   Numkr of mlmsllom
28




 Month

     -      Scheduled
     -mm-   Actual




                                          Page 22                         GAO/NSIAD-90-146 Missile Procurement
            .

                                           Chapter 3
                                           Continning De&n Changea and
                                           Production Problems




Figure 3.2: Raytheon’s Scheduled and Actual MisslIe Deliveries Per Month
SO     Number at mlailoa
28
26
24
a
20
18
16
14
12
10
a
II
4
2
0
       ,-, . -     -. .




    Month

       -         Scheduled
       -m-m      Actual


                                           Hughes did not complete delivery of first production year missiles until
                                           January 1990,6 months beyond schedule. At the completion of our
                                           review, Raytheon also was at least 6 months beyond its scheduled deliv-
                                           ery date and was expected to complete its deliveries of first production
                                           year missiles in May 1990. Both contractors were to have started deliv-
                                           ering second production year missiles in August 1989, but, as of March
                                           1990, none of these missiles had been delivered. Moreover, in early Feb-
                                           ruary 1990, the government stopped accepting missiles until the causes
                                           for reliability problems are better understood and resolved. At that
                                           time, the contractors had delivered a total of only 134 of the 380 mis-
                                           siles required by their contracts to be delivered by that date. At the
                                           completion of our review, the Air Force was attempting to identify real-
                                           istic, achievable missile delivery schedules for the second through
                                           fourth production years.




                                           Page 23                                  GAO/NSIAD-90446 Missile Procurement
                    Chapter 3                                                                    .
                    Continuing Desigu Changes and
                    Production Problems




                    Design and manufacturing process changes and quality and subcontrac-
Reasonsfor          tor problems have disrupted production schedules and delayed missile
Production Delays   deliveries despite both contractors’ additional production shifts and
                    extended workweeks.

                    Production delays were caused in part by numerous design, quality, and
                    manufacturing process changes needed to improve AMRAAM'S reliability.
                    For example, flexible electrical connecting strips broke frequently, and
                    ceramic circuit cards came loose when exposed to the F-15 vibration
                    levels. These problems were corrected by using an alternate design for
                    the flexible connectors and an improved bonding at the corners of the
                    ceramic cards.

                    Another design problem, also attributed to the F-15 vibration levels, was
                    that the missile wing alignment pin and hole were wearing excessively,
                    thus exceeding the maximum movement permitted for effective per-
                    formance. The Air Force has accepted a “saddle” design, which bolts
                    into the missile to better hold its wings straight, to correct this problem
                    for the second and third production year missiles. Ground vibration
                    tests indicate, however, that additional changes will be required for the
                    missile wing to achieve a reliability value of 450 hours between mainte-
                    nance, which is required 2 years after the missile achieves its initial
                    operational capability.

                    Subcontractor problems also have contributed to production delays. For
                    example, the safe and arm mechanism, a safety device that prevents the
                    warhead from detonating prematurely, failed tests designed to ensure
                    that production units are acceptable. Because the tests revealed a num-
                    ber of problems, the devices had to be reworked. Additionally, the only
                    qualified supplier of the devices ceased operations and filed for bank-
                    ruptcy before the units were reworked. After a delay of several months,
                    Hughes’ devices have been reworked and incorporated into its first pro-
                    duction year missiles. Raytheon anticipates having all of its devices
                    reworked and ready for its first production year missiles by early 1990.
                    Both Hughes and Raytheon are qualifying alternate production sources.




                    Page 24                                    GAO/NSIAD-90-146 Missile Procurement
                              Chapter 3
                              Continuing Design Changes and
                              Production Problems




                              Further design changes may be needed to overcome continuing reliabil-
Continuing Design             ity problems. These changes could adversely affect future missile deliv-
Changes and                   eries. Also, other production problems that have delayed first
Manufacturing                 production year deliveries- including shortages of certain missile com-
                              ponents-have not been resolved.
Problems May Impact
Future Deliveries

Independent Tests Iden.tify   Three days after the latest reliability tests resumed, a welded joint in
Additional Problems           the missile’s guidance section cracked, resulting in the missile’s failure
                              after only 2 flight hours. For safety reasons, flight testing was stopped
                              until the problem could be corrected. An investigation concluded that
                              this failure resulted from a workmanship problem at a subcontractor
                              that supplies both contractors. The investigation also found that the
                              specifications and inspection procedures included in the technical data
                              package were not adequate to ensure acceptable welds. In addition to
                              changing the data package, all missiles, including those accepted for the
                              operational inventory, had to be reworked at the manufacturers.

                              When testing resumed in January 1990, a wing fell off a missile after 14
                              flight hours. The cause of this problem was also traced to poor work-
                              manship. Hughes determined that during a minor modification to
                              improve the wing’s reliability, a worker did not properly apply a coating
                              designed to keep the threaded device from loosening. Also, Hughes has
                              since increased the torque value in the specifications to ensure that the
                              device is adequately tightened.

                              In early February 1990, five additional missile failures occurred.
                              Although additional analyses were continuing as we completed our
                              review, these five failures have been categorized primarily as a combi-
                              nation of component reliability failures and manufacturing process
                              problems and errors. However, because of the seven total failures dis-
                              covered at that point, each in different parts of the missile, the Air
                              Force notified both contractors on February 8, 1990, that the govern-
                              ment would not accept additional production deliveries until the
                              problems causing the failures were better understood and corrected. In
                              March 1990,3 additional missile failures occurred, for a total of 10 since
                              this phase of testing started in December 1989. As we completed our
                              review, the Air Force was still analyzing the causes of these latest mis-
                              sile failures.




                              Page 25                                    GAO/NSIAD-90-146 Missile Procurement
                            Chapter 3                                                                   .
                            Chtlnulng Design Changes and
                            Production Problems




SomeMissile Components      The Air Force has not completed qualification tests to determine if all of
Not Tested to Higher F-15   the missile’s components can withstand the higher F-15 vibration levels.
                            For example, ground testing of AMRAAM’S rocket motor and warhead are
Vibration Levels            expected to be completed by April 1990. For safety reasons, the Air
                            Force’s independent test center uses test missiles that contain inert
                            rocket motors and warheads, not the actual warhead and rocket motor,
                            to test AMRAAM’S reliability.

                            Additionally, the Air Force has funded 24 projects to redesign AMRAAM
                            components to make them easier to produce and thereby less costly.
                            However, only 6 of these projects have been successfully tested on a
                            laboratory basis to the higher F-16 vibration levels; the remaining 18
                            projects are still in development.


Continuing Manufacturing    Both contractors are continuing to experience problems producing qual-
and Subcontractor           ity parts and subassemblies at the planned rates. In many instances the
                            individual parts pass required inspections and tests, but higher level
Problems                    assemblies, which include the parts, fail. The contractors are attempting
                            to develop additional tests and inspections to find these problems earlier
                            and are reviewing the specifications to see if additional inspections are
                            needed to overcome the problems.

                            In addition, component and material shortages from other suppliers also
                            may affect future delivery schedules. For example, during our January
                            1990 visits to both contractors’ manufacturing facilities, we noted that
                            detailed schedules showed continuing shortages of certain missile com-
                            ponents These shortages were the result of subcontractors having diffi-
                            culties supplying adequate quantities of several missile components
                            such as the warhead, the rocket motor, the radio frequency head, the
                            inertial reference unit, and the safe and arm mechanism.

                            At the completion of our review, both contractors were reviewing design
                            specifications and process controls in their plants and at their subcon-
                            tractors to resolve problems and ensure the quality and reliability of
                            future missile deliveries.


                            At the time of our September 1989 report, Air Force assessments to
Production Readiness        determine the contractors’ readiness for full-rate production had been
AssessmentsDelayed          delayed from March to November 1989. This additional time was needed
                            for the contractors to overcome problems that were delaying production.



                            Page 20                                   GAO/NSIAJHO-146 Missile Procurement
    Chapter 3
    Cmtlnulng Design Clmuges and
    Production Problems




    Since then, the Air Force has delayed the date of the contractors’ readi-
    ness reviews to April 1990.




Y




    Page 27                                   GAO/NSIAD-90-146 Missile Procurement
Chapter 4

Estimated CostsIncreaseSignificantly


                                AMRAAM'S estimated procurement cost in 1984 dollars has increased to
                                $9.4 billion, or 24 percent above the $7.6 billion adjusted statutory cost
                                cap for the procurement of 24,000 missiles. With inflation, AMFUIAM'S
                                total procurement cost is now estimated at $13.5 billion-a 31-percent
                                increase over the December 1988 estimate of $10.3 billion. The cost
                                increase is due primarily to changes in key assumptions, such as the
                                amount of savings from contractor competition and the rate that costs
                                decrease which normally results as the contractors learn to produce mis-
                                siles more efficiently. In addition, the cost estimate assumes that
                                between $0.9 billion and $1.7 billion will be appropriated each year for
                                the next 8 years. The total AMRAAM procurement cost will increase even
                                further if the administration and/or the Congress fail to provide those
                                funding levels.


                      Because of its concern about the escalating cost of the AMRAAM program,
Long-Standing         the Congress established-in    the National Defense Authorization Act
Congressional Concern for fiscal year 1987-a cost cap of $7 billion (in 1984 dollars) for the
About AMRAAM’s        procurement of 24,000 missiles. The act stipulated that the cap could be
                      adjusted for cost increases that result from congressional funding
cost                  actions. Notice of such adjustments must be provided to the Congress.
                                The Air Force later notified the Congress that it had adjusted the cap to
                                $7.585 billion (in 1984 dollars) based on congressional reductions in
                                AMKAAM procurement quantities and funding requests for fiscal years
                                1987 and 1988. According to the Air Force, the congressional reductions
                                caused a less efficient production program.

                                In September 1988 the Director, Operational Test and Evaluation, noti-
                                fied the Secretary of Defense and the Senate and House Committees on
                                Armed Services and on Appropriations that AMRAAM was not ready for
                                full-rate production and that the procurement quantity for fiscal year
                                1989 should not exceed 900 missiles. The President’s Budget had
                                requested 1,270 missiles. The conference report for the Department of
                                Defense Appropriation Act for fiscal year 1989 directed that no fiscal
                                year 1989 production funds be obligated until the AMRAAM acquisition
                                plan was revised and the Under Secretary of Defense for Acquisition
                                certified that the Director, Operational Test and Evaluation, agreed to
                                the plan. The Department of Defense submitted the revised plan and




                                Page 28                                   GAO/NSIAD-90-146 Missile Procurement
                      Chapter 4
 .                    Estimated Costs Increase Significantly




                      certification on December 9, 1988. The revised plan recognized a 4 per-
                      cent estimated cost increase above the $7.585 billion adjusted cost capaH

                      In February 1990 the Secretary of the Air Force notified the Congress
                      that AMRAAM’S program acquisition unit cost had increased more than 25
                      percent. The December 1989 Selected Acquisition Report showed that
                      AMRAAM’S estimated procurement cost had risen from $7.6 to $9.4 billion
                      (in 1984 dollars).


                      According to the December 31, 1989, Selected Acquisition Report for the
Causesfor             AMRAAM program, the cost increase was caused primarily by changes in
Procurement Cost      assumptions about savings from contractor competition and production
Increases             learning rates.



ReducedSavings From   The estimate supporting the statutory cost cap assumed that savings
Competition           from competition would begin in the third production year. The first 2
                      years were to be negotiated procurements based on the contractors’ pro-
                      posed prices for various portions of the total procurement quantity for
                      each year.

                      Each contractor’s proposal for the third production year, however, was
                      much higher than expected. As a result, the Air Force notified each con-
                      tractor that the third production year would be a negotiated procure-
                      ment and requested each contractor to submit certified cost and pricing
                      data. In addition, the Air Force concluded that a postponement of price
                      competition was needed to achieve increased contractor cooperation to
                      resolve a number of design and production problems. As a result, the Air
                      Force delayed the first year of price competition until the fifth produc-
                      tion year.


Slower Production     A production cost estimating technique is to project material and labor
Learning Rates        savings that are expected to result from producing increasingly higher
                      quantities over several years. As with other program cost estimates, the
                      AMRAAM cost estimate of $7 billion (in 1984 dollars) was based on effi-
                      ciency improvements realized during the fabrication of development or

                      ‘In the December31, 1988,SelectedAcquisition Reportfor the AMRAAM program,the Air E’orce
                      estimatedthat the procurementcostwould be about 2 percentover the adjustedstatutory cost,cap,
                      provided that the programwas given the authority for multiyear procurementin the later years of
                      the program.



                      Page 29                                                GAO/NSLAD-90-146Missile Procurement
                                        Chapter 4
                                        Estimated Costa Increase Significantly




                                        prototype missiles and experience gained from other similar programs.
                                        In addition to development data, the latest AMRAAM cost estimate consid-
                                        ers the results of negotiated contracts for the first three production
                                        years and the contractors’ proposals for the fourth production year. On
                                        the basis of these data, the projected learning curves for material and
                                        labor were adjusted to be less optimistic than those used in earlier
                                        estimates.


                                        The current cost estimate, which would exceed the adjusted statutory
Substantial                             cost cap, is based on the assumption that the administration and the
Procurement Funds                       Congress will provide substantially increased funding for AMRAAM pro-
Needed in Future                        duction in future years. Between $0.9 billion and $1.7 billion per year
                                        will be needed in each of the next 8 years to maintain the projected pro-
Years                                   duction schedule. If the funds are not provided, the schedule will slip
                                        and costs will increase due to, among other things, higher overhead
                                        charges per unit and less-than-optimal component procurement quanti-
                                        ties. Table 4.1 shows projected missile quantities and funding require-
                                        ments through fiscal year 1998.

Table 4.1: AMRAAM Procurement
Quantity and Funding Requirements for   Then-year   dollars    in billions
                                                              ___-.___             ____ _.. - -___.-    ..._~~~~ -~~
Fiscal Years 1991 Through 1998                                                                  Procurement
                                        Fiscal year                                         Quantity           Funding
                                        1991                                                     1,800             $1.3
                                        1992
                                        ..---                                                    3,000               1.7
                                        1993                                                    3,000                1.4
                                        1994                                                     3,000               1.2
                                        1995                                                    3,000                1.3
                                        1996                                                    3,000                1.3
                                        1997
                                        _---__         --~--__          ..---~                  3,000                1.2
                                        1998                                                    2,140               0.9




                                        When the Under Secretary of Defense for Acquisition endorsed the $9.4
Current Estimate                        billion estimated procurement cost, the Under Secretary stated that the
Under Review                            Air Force and the Cost Analysis Improvement Group would conduct a
                                        full cost review before the May 1990 meeting of the Defense Acquisition
                                        Board. Also, the Air Force and the Navy are to review and reconcile
                                        their quantity requirements. Among other things, the review of AMRAAM
                   Y
                                        quantity requirements is expected to consider revised threat assump-
                                        tions and changes in force structure.



                                        Page 30                                   GAO/NSL4D-90-146 Missile Procurement
Chapter 4
Estimated Costa Increase Significantly




In February 1990 the Air Force directed the AMKAAM Program Office to
prepare a plan based on the assumption that a total of only 16,600 mis-
siles would be procured. At the completion of our review, no final deci-
sion had been made to adjust AMFLMMprocurement quantities. Reduced
quantities would lower total procurement cost but increase the unit cost
of each missile. The Air Force and the contractors also were studying
other ways to reduce AMRAAM procurement costs such as accelerating
producibility enhancement projects.




Page 31                                  GAO/NSIAD-90-146 Missile Procurement
                                                                                        “71
ClXjj-$r_-- 5

Conclusionsand Recommendation                                                                      a


                    In May 1990 the Defense Acquisition Board plans to review the AMRAAM
                    program and make a recommendation to the Secretary of Defense on
                    whether the program should proceed into full-rate production, return to
                    full-scale development, or be terminated. The Under Secretary of
                    Defense for Acquisition has stated that continued low-rate production is
                    not an option.


                    As of March 1990, the AMRAAM program was not ready for full-rate pro-
Conclusions         duction. In addition, the Air Force should not award any additional pro-
                    duction contracts until significant questions are resolved about the
                    missile’s performance, reliability, producibility, and affordability. For
                    example:

                  . Tests had not yet shown that the missile can accomplish a few remain-
                    ing critical performance requirements, and the missile’s reliability was
                    unacceptable.
                  . The Department of Defense had authorized over $2.4 billion for the pro-
                    duction of 1,480 missiles, but the contractors were at least 6 months
                    behind in missile deliveries and some of the problems that delayed pro-
                    duction had not been resolved. Of the 380 missiles required under con-
                    tract to be delivered through January 1990, only 134 had been
                    delivered, and the Air Force had stopped accepting missiles because of
                    the poor reliability.
                  . The total procurement cost had increased substantially-24       percent
                    above the adjusted statutory cost cap-and cost will increase further
                    unless the administration and Congress are willing to provide between
                    $0.9 billion and $1.7 billion per year over the next 8 years for AMRAAM
                    procurement. The Air Force and Navy were considering possible reduc-
                    tions in total procurement quantities.

                    In our opinion, approving additional funds for continued low-rate or
                    full-rate production of AMUM before questions about its performance,
                    reliability, producibility, and affordability are resolved will increase the
                    risk that additional missiles will need costly retrofits, weapons in inven-
                    tory will not perform satisfactorily, and different missile configurations
                    will have to be maintained.


                    We recommend that the Secretary of Defense not approve any addi-
XZecommenqation     tional AMRAAM production until (1) tests demonstrate that AMRAAM can
                    meet all of its critical performance requirements and that its reliability
                    meets the established requirements, (2) both contractors demonstrate


                    Page 32                                     GAO/N&ID-90-146   Missile Procurement
-
                Chapter 6
    I           Canclueione and Recommendation




                that they can consistently produce quality missiles at the rates required
                by their contracts, (3) the Air Force and Navy complete their review of
                missile quantity requirements, and (4) the Department of Defense deter-
                mines that the AMRAAM program is affordable within realistic future
                budget projections and consults with the Congress to ensure that the
                program complies with the adjusted statutory cost cap.


                The Congress should deny the $1.34 billion requested for AMRAAM pro-
Matter for      curement in fiscal year 1991 because the missile’s performance, reliabil-
Congressional   ity, producibility, and affordability remain questionable. Moreover,
Consideration   missile deliveries from the first production year are at least 6 months
                behind schedule and additional delays appear likely. In addition, funds
                have already been appropriated for three additional production years,
                two of which are fully under contract and one which has the procure-
                ment of long-lead items under contract. We believe it is highly unlikely
                that additional procurement funds will be necessary before fiscal year
                1992.

                During our review, the Air Force could not provide us with any informa-
                tion regarding the adverse impact, if any, of the Congress not providing
                fiscal year 1991 procurement funds. Air Force efforts to establish realis-
                tic missile delivery schedules and modify the contracts for the second
                and third production years had not been completed, and the contracts
                for the fourth production year have not yet been negotiated, Should the
                contractors resolve their manufacturing problems and begin to produce
                quality missiles consistently, ample opportunity would be available to
                rephase delivery schedules to preclude any gaps in production. Denying
                additional AMRAAM procurement funding for the fifth production year-
                fiscal year 1991-would reduce financial risks while the Under Secre-
                tary of Defense for Acquisition determines if reliability problems can be
                resolved and if the contractors can recover delivery schedules.




                Page 33                                   GAO/NSLAD-90-146 Missile Procurement
Appendix I

Major Contributors to This Report


                        Norman J. Rabkin, Associate Director
National Security and   Robert L. Pelletier, Assistant Director
International Affairs   William R. Graveline, Assignment Manager
Division, Washington,
D.C.
                        Lee A. Edwards, Regional Management Representative
Atlanta Regional        John L. Grant, Evaluator-in-Charge
Office                  Donald C. Dunham, Evaluator
                        Robert E. Kigerl, Evaluator




                        Page 34                                GAO/NSIAD-90-146 Missile Procurement
Page 35   GAO/NSIAD-SO-146 Missile Procurement
                                                                                         ..c-
RelatedGAO Products                                                                        ‘UI


                Missile Procurement: AMRAAM Not Ready For Full-Rate Production (GAO/
                NSIAD-89-201, Sept. 7, 1989).

                Missile Development: AMRAAM'S Combat Effectiveness at Production Not
                Fully Tested (GAOINSIAD-88-186, July 7, 1988).

                Missile Development: Development Status of the Advanced Medium
                Range Air-to-Air Missile (GAO/NSIAD-87-168, Aug. 14, 1987).

                Missile Procurement: Advanced Medium Range Air-to-Air Missile
                Preproduction Test Results (GAO/NSIAD-87-i65FS, June 2, 1987).

                Missile Procurement: AMRAAM Cost Growth and Schedule Delays (GAO/
                NSIAD-87-78, Mar. 10, 1987).

                Missile Development: Advanced Medium Range Air-to-Air Missile
                (AMRUM)   Certification Issues (GAO/NSIAD-86-124BR, July 9, 1986).
                                               .                       I




                Missile Development: Advanced Medium Range Air-to-Air Missile Legal
                Views and Program Status (GAO/NSIAD-86-88BR, Mar. 28, 1986).

                Missile Development: Status of Advanced Medium Range Air-to-Air          Mis-
                sile (AMRAAM) Certification (GAO/NSIAD-86-66BR. Feb. 18. 1986).
                    \       ,              \       ,                           I




            Y




(tH2filn)       Page 36                                   GAO/NSIAD-90-146 Missile Procurement
,:


2
     r